Tax Reform In India

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IMPACT OF SECURITIES TRANSACTION TAX AND OPTIMUM PORTFOLIO SELECTION OF COMPANIES LISTED IN NIFTY 50 INDEX. Introduction Many developing countries have embarked on tax reforms in recent years. Such reforms were motivated both by local factors as well as by rapid internationalization of economic activities. The need to correct fiscal imbalances and the transition from a centralized plan to a market economy were the important local factors hastening tax reforms. Difficulties in compressing expenditures necessitated that tax system reform take an important role in fiscal adjustment strategy. The transition from plan to market required the substitution of administered prices with market determined prices, the replacement of physical controls with…show more content…
In the initial years, tax policy was used as an instrument to achieve a variety of diverse goals which included increasing the level of saving and correcting for inequalities arising from an oligopolistic market structure created by a centralized planning regime, including a licensing system, exchange control, and administered prices (Bagchi and Nayak 1994). While the history of taxation in India is peppered with efforts for tax reform, especially in the form of various expert committees, the fiscal crisis of 1991 provided the first major window of opportunity for a serious rethink, followed by action. Taxes are the government’s way of earning an income which can then be used for various projects that the governments need to indulge in boosting the country’s economy or its people. Taxes in India are decided by the central and state governments with local governments, such as municipalities, also deciding on smaller taxes that can be levied within their jurisdiction. It must, however, be remembered that the government cannot impose any tax that it wishes to. All the taxes imposed by the government must be…show more content…
They can be summarised into the need to increase the level of savings and investment in the economy and hence stimulate growth and the need to ensure a fair distribution of incomes. These meant an effort to raise taxes from those with an “ability to pay”, with little regard for the efficiency implications of the chosen instruments for the purpose. The role of history and institutions was also important in shaping the tax system in the country. Indeed, the nature of federal polity, assignment of tax powers and tax sharing arrangements have impacted on the incentives for revenue mobilisation and the structure and administration of the taxes in both central and state governments. The overlapping tax systems have made it difficult to have encompassing, comprehensive and co-ordinated tax system reforms. Another legacy of planning is selectivity and discretion both in designing the structure and in implementation of the tax system. These contributed to erosion of the tax base, created powerful special interest groups, and introduced ‘negotiated settlement’ to the tax system. In a closed economy, inefficiencies did not matter and relative price distortions and disincentives to work, save and invest did not warrant much

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